Demand for higher fee by banks to hit profits: ICICI PruLife

Opening up of bancassurance network has been viewed as a mixed bag by sector

ICICI Prudential Life Insurance in its draft red herring prospectus (DRHP) said that banks demanding higher commissions could lead to an increase their costs of sales.

According to the internal risks relating to their business as shown in the DRHP, as the bancassurance market becomes increasingly competitive, banks could demand higher commission rates, which would increase our costs of sales and materially reduce our profitability.

From April 1, 2016, banks have been allowed to tie-up with three life, three non-life and three standalone health insurance companies.

This was on account of changes in corporate agency norms. Earlier, banks were allowed to tie-up with only one life, one non-life and one standalone health insurer. Hence, those who had banks as promoters or were early entrants to the industry had already entered into agreements with the banks.

 

In its DRHP, ICICI PruLife has said that banks which have entered into bancassurance agreements with their company, including ICICI Bank and Standard Chartered Bank, are the main distribution channels for their insurance products. The retail Annualised Premium Equivalent (APE) from bancassurance partners represented 54.6%, 59.4% and 58.6% of their retail APE in fiscal 2014, 2015 and 2016, respectively.

The retail APE through ICICI Bank represented 54.5%, 56.1% and 54.9% of their retail APE in fiscal 2014, 2015 and 2016, respectively. Currently, ICICI Bank exclusively distributes our life insurance products despite not being contractually bound to do so. APE is the sum of annualised first year premiums on regular premium policies, and ten percent of single premiums, written by the company during any period from both our retail and group customers.

Opening up of the bancassurance network has been viewed as a mixed bag by the sector. While it has benefitted those without a bank partner to sell products through the wide branch networks provided by these entities, those who had exclusive tie-ups will now have the same bank selling the products of other insurers as well.

ICICI PruLife has said that any termination of, or any adverse change to, their relationships with or performance of their bancassurance partners, including with ICICI Bank and Standard Chartered Bank, may have a material adverse effect on their business, financial condition, results of operations and prospects.

"Any termination of, disruption to, or any other adverse change to, our relationship with the banks with which our Company has entered into bancassurance agreements....could significantly reduce our product sales and our growth opportunities," it said in the DRHP.

Their bancassurance agreement with ICICI Bank can be terminated by ICICI Bank after March 31, 2017 after informing our Company and the IRDAI of the reasons for termination. The insurer said that a regulator might also require one or all of their bank partners to distribute competitors' products, which could significantly reduce their product sales and growth opportunities.